Non-tax compliant clients can be caught by group requests

in Financial Services, Tax, 24.11.2015

A recent Dutch group request for administrative assistance shows that before the Automatic Exchange of Information (AEoI) has even entered into force in Switzerland in 2017, there is hardly any time left for tax evaders to disclose their undeclared assets. International tax transparency already exists today. The Swiss Federal Tax Administration has recently approved a Dutch group request for administrative assistance affecting clients directly. It is expected that the Netherlands will soon target other Swiss banks’ clients as well and that other countries will follow this approach.

While the AEoI in certain Early Adopter Countries will already enter into force on 1 January 2016, other countries, including Switzerland, have confirmed to implement the AEoI as from 2017. However, foreign tax authorities already today have the possibility to obtain client data of (former) clients of Swiss and other foreign banks, insurance companies or, for example, fiduciary firms.

Sources of information for foreign tax authorities

In July 2012, the OECD decided that group requests are also possible under Article 26 of the OECD Model Tax Convention, which establishes the international standard for administrative assistance in tax matters. Like all other important financial centers, Switzerland accepted this broadening of the standard on administrative assistance. According to the Swiss Tax Administrative Assistance Ordinance, group requests are permitted for information pertaining to the time after 1 February 2013.

In particular, the following requirements must be met for granting administrative assistance based on a group request:

  • A specific request to Switzerland for administrative assistance: For administrative assistance to be provided, the country in question has to contact Switzerland with a specific request for the assistance.
  • Double Taxation Agreement (DTA) with an administrative assistance clause in accordance with the OECD standard: Switzerland and the country making the request must have signed a DTA containing an administrative assistance clause in accordance with the OECD standard. Alternatively, the request can be based on the OECD Convention on Mutual Administrative Assistance in Tax Matters (OECD Administrative Assistance Convention) as of 2017.
  • A detailed description of the group of taxable people identified: The request for administrative assistance must include a detailed description of a group of taxable persons as well as a clear and fact-based justification of why this group of people is believed to be non tax-compliant.

More group requests from the Netherlands and other countries will follow

The Dutch group request meets all requirements mentioned above. We expect that the Swiss Federal Administrative Court will approve the group request upon an objection by a taxpayer concerned. We also believe that the Netherlands will soon target other Swiss banks with very similar requests. What is more, Switzerland has signed about 60 Double Taxation Agreements / Tax Information and Exchange Agreements (of which 52 are in force) that allow group requests, generally for periods after 1 February 2013 (if the respective agreement was already in force at that time). This means that not only most EU member states but also countries such as India, Mexico and Russia can use group requests to obtain information on accounts from financial institutions. It is therefore very likely that other countries will copy the administrative assistance request of the Netherlands in the coming months point by point.

Furthermore, in October 2013, Switzerland also signed the OECD Administrative Assistance Convention, which is expected to enter into force in 2017. The convention will provide for an exchange of information (including group requests back to 1 January 2014) between all participating countries, making the scope of potential administrative assistance requests even broader.

The Dutch group request

The Dutch group request affects Dutch taxpayers that cumulatively fulfil the following group definition criteria:

  • Holders of a bank account at the relevant Swiss bank between 1 February 2013 and 31 December 2014 (i.e. closed accounts are affected too)
  • Domicile address in the Netherlands
  • Account balance once exceeded EUR 1,500 in the above mentioned period
  • The relevant Swiss bank sent a letter to the account holder in which they were informed that the business relationship will be terminated if the client does not file the form “EU Savings Tax – Agreement to disclosure“ or otherwise confirms tax compliance
  • Client has not confirmed tax compliance to the Swiss bank by
    • reporting under the EU Savings Tax Agreement,
    • confirmation of disclosure in the Netherlands or
    • confirmation of fulfilling tax reporting obligations in the Netherlands in the past

Non-tax compliant clients should file a voluntary disclosure immediately

Clients who are resident in a country that will implement the AEoI and who close their foreign account before entry into force of the AEoI will not be reported under the AEoI. However, they are still at considerable risk of being affected by a (group) request for administrative assistance under existing double taxation and tax information agreements, or under the OECD Administrative Assistance Convention. In the face of an even more extensive tax transparency, non tax-compliant clients should submit a voluntary disclosure as soon as possible. International tax transparency is a reality – already today – and running away is not an option anymore.

 

 

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